This past autumn, data was published suggesting that Indian investment across the African continent has risen significantly. Specifically, the World Investment Report for 2023 from the United Nations Conference on Trade and Development (UNCTAD) revealed that India’s financial commitments had come to amount to $14 billion (NGN 11.25 trillion) in foreign direct investment (FDI) outflows to India, as of 2021. The report, summarised at Business Standard, described this data as being “broadly indicative” of a trend toward more financial commitments across the African Union. Undoubtedly, this kind of growing investment will help to boost African economies and spark growth in new industries. But what does it mean specifically for Nigeria and local investors throughout the country?
It’s difficult to say with precision how much of India’s FDI outflow as of 2021 was making its way to Nigeria. What is notable, however, is that as India has continued to pour money into African nations and economies, Nigeria has emerged as a priority. In September, in fact, a piece at Reuters revealed that Nigeria had secured its own pledges from India worth $14 billion (NGN 11.25 trillion) moving forward. That this number matches the estimated FDI outflow from 2021 appears to be a coincidence. Regardless, it has now become clear that India’s heavy investment in Africa is poised to have a profound impact on Nigeria, in particular, moving forward. With this in mind, we are better able to assess what the effects might be on local investors in the country.
What is the Investment Climate in Nigeria?
Historically speaking, Nigeria actually has a reputation as a country in which investment is not a popular financial strategy. Just last year, Halo Financial Services co-founder Nnenna Onyewuchi was quoted in an article at BusinessDay saying that less than 3% of Nigerians were invested in the formal financial markets. Onyewuchi characterised this as a problem resulting in tens of millions of Nigerians “missing out on the opportunity to build wealth through investing.”
With that said, the same piece at BusinessDay noted that there are new government programmes designed to encourage mass market uptake of investments. While the government is focused primarily on urging citizens to buy into fixed-income investments (such as treasury bills, bonds, and certificates of deposit), the initiative conveys an endorsement of financial trading as a strategy for personal wealth growth.
At the same time, Nigeria has also seen a rise in the number of platforms and methods that support this kind of financial trading. While brokers have long been available, newer methods come in the form of intuitive, online trading engines and mobile apps, some of which come packaged with the MetaTrader 5 investing software. This is important for newcomers to financial markets because it pairs newer platforms with an established program. With MT5, more Nigerian traders are now able to access a variety of markets (including stocks, indices, forex, and commodities) with new levels of convenience.
Given these dual developments –– government encouragement and software availability –– it is reasonable to expect that we could see a gradual uptick in the number of individuals investing throughout the country.
What Opportunities Do Indian Investments Provide?
There is an overarching sense in which Indian FDI outflow to Nigeria should improve private investors’ opportunities. An influx of foreign cash has the potential to buoy the economy for a sustained period of time. This in turn could lead to more industry and company successes across the country, raising stock and related asset values and boosting portfolios. Beyond this general reality, however, we can also look to India’s planned $14 billion in spending for specific opportunities that may arise for Nigerian investors.
That influx of wealth from India is expected to go toward a few particular projects. The following were highlighted in the aforementioned write-up at Reuters:
Steel Sector –– Among the Indian pledges to Nigeria was a plan for $3 billion (NGN 2.37 trillion) to be injected into the Nigerian steel sector by India’s Jindal Steel and Power. This could lead to investment opportunities not just with Jindal Steel and Power abroad but potentially with Nigeria’s own African Industries Group (though the company is not presently listed on exchanges).
Petrochemical Facilities –– India’s Indorama Corp pledged an impressive $8 billion (NGN 6.32 trillion) toward the expansion of its own petrochemical facility, which is already operating in Nigeria. This kind of wealth infusion will affect the petrochemical industry, including Nigerian companies like MRS Oil Nigeria, providing opportunities for investors to keep an eye on.
Power Plants –– Bharti Enterprises, a multi-faceted multinational company based in India, has indicated that it will direct some $700 million (NGN 533.4 billion) toward the establishment of new power plants in Nigeria. This will affect energy stocks and resources and could ultimately give rise to new plants or power companies that will become investable.
Defence Manufacturing –– Nigeria also partnered with the Indian government to secure $1 billion (NGN 790 billion) that will be used to make the African nation self-sufficient regarding the production of defence equipment. The work will be done by the Defence Industries Corporation of Nigeria, which is not a publicly traded entity. Nonetheless, this big push could lift up investable entities in manufacturing and labour.
Opportunity Moving Forward
We are not yet at the point where a handful of specific stocks or assets can be identified as clear opportunities for Indian investors. However, it is clear that progress is being made toward a favourable climate for a rising tide of Nigerian investors. The government is encouraging investment, and intuitive, professional trading platforms are being made available. At the same time, a large foreign economy is promising to pump enough money into the Nigerian economy to bring about a prosperous economy.
What is important for prospective investors now is keeping an eye on the near future. The bulk of the promised Indian investment is yet to come, and we also know that when Nigerian President Tinubu recently travelled to the G20 Summit, Nigerian officials met with a variety of CEOs and government officials from India. This is to say that beyond the initial pledges, Nigeria established relationships with India that may well lead to additional investment down the road.
Investors should be cautious for now, and time will tell what kind of impact India’s commitments to the Nigerian industry ultimately make. What is clear, however, is that there is potential for significant economic growth right at a time when private investment is being incentivised in Nigeria. That amounts to lots of potential opportunities.
